Marc,

Your 2-year-old is very fortunate. I commend you for thinking ahead! Many Americans do not plan adequately for their children’s education and miss out on the significant tax advantages of a college savings plan. Furthermore, tuition costs keep escalating with no end in sight. It is never too early to begin saving, so my advice is to start as soon as possible.

You can find information on 529 college savings plans at www.savingforcollege.com. There you can also find a college cost calculator to help you determine how much you need to save given your child’s age, the type of college, and the inflation-adjusted projected cost of college by the time your child will attend. Even if you are not able to save the full amount recommended, save what you can (some plans require an initial contribution of only $25 to get started). By starting the process of saving now, you can decrease the stress you may feel later.

There are many variables to consider before deciding on a particular college savings plan, so I encourage you to consult with your financial planner or tax professional before pulling the trigger. A word of caution: Don’t make the mistake of neglecting to save adequately for your own retirement, or your graduation gift to your children might include a couple of elderly dependents.

Regards,

Dr. Brad

Mary,

Receiving some unexpected money can be a blessing. However, the sudden nature of an inheritance, insurance or court settlement, or even a lottery win can find people ill-prepared to handle the psychological and financial fallout. It is quite common for sudden money recipients to squander the money and end up right back where they started in a matter of months. That’s why the first step in dealing with a financial windfall is to put on the brakes and do nothing until you have reviewed your options and mapped out a plan

Congratulations on recognizing the danger inherent in your inheritance. With some forethought and planning, you can make the most of your windfall, improve your financial trajectory and avoid decisions you will later regret. Paying off your unsecured debt is a logical choice. However, it is much more important for you to take an honest look at how the debt came about in the first place, and have a plan for avoiding such debt in the future. Without some insight and resolve to change your habits, paying off debt with a windfall can be similar to taking aspirin to cure a toothache—you will feel some temporary relief, but the pain is sure to return.

I strongly recommend you seek the assistance of a financial planner or tax professional to help you think through the best ways of tackling your liabilities (considering such variables as your interest rates) and assist you in making the most of your financial windfall. Buying a few hours of objective advice from a good financial professional can pay dividends.

Regards,

Dr. Brad

Leslie,

You're not alone. Many Americans use shopping to try to improve their mood. In its extreme, such shopping can develop into a compulsive buying disorder, which is just as common as depression in America.

However, like most compulsive buyers, you have probably also noticed that over-shopping comes at a cost that is more than just financial. Quite often over-shoppers feel a sense of guilt, suffer from feelings of low self-worth, and end up having problems in their relationships. But you can stop the over-shopping cycle. Try putting some time between your impulse to buy something and your buying behavior. Take a few deep breaths and ask yourself, is this something I really need? Is this something I will use? Is this something I can afford?

Think about some other ways you can make yourself feel better, such as a long walk, journaling or talking to a trusted friend. If you feel that your shopping is out of control and other activities aren't helping discourage the over-shopping, consider seeking the help of a financial therapist.

Regards,

Dr. Brad

Melissa,

Allowances provide an excellent opportunity to teach children the basics of good money management. Your current approach is teaching your children only one of the three things we do with money—spending it. This is the one financial behavior that requires little instruction and gets most American adults in trouble. Now is the time to teach your children how to save money and how to give money away.

If you want them to become financially healthy adults, have them save $2 of their allowance (20%) for their "Freedom Fund"—a long-term savings/investing account that will eventually provide them income without the need to work. Long-term saving for freedom from work is only one aspect of savings they need to learn. Also teach them to set aside $2 or more per week for a larger purchase or expense. While they might buy something like a video game or bicycle now, this habit can translate into saving for a car or down payment on a house someday.

Have them also set aside at least $1 per week (10%) to donate to charity. After a year's worth of saving, help them pick a charity and make the donation. If possible, have them hand the check directly to a representative of the charity. You might want to call ahead to alert someone there that you are coming, so they can make sure to thank your child and make it a rewarding experience.

Allow your children to spend the remaining $5 per week (50%) as they see fit—whether they want to make a purchase today or add to their savings or charitable donation. Use allowance as a method to teach your children how to spend, save and give money away appropriately. Like brushing and flossing their teeth, good money management habits will follow them into adulthood.

Regards,

Dr. Brad

Randy,

Talk to your child about money: where it comes from, what it is, and what it does and doesn't do. You can try the following experiment to help make money "real" for your son, without giving him more information about your financial situation than he needs to know.

Bring home your next paycheck and show it to him. Then take him to the bank and let him watch you cash it. Take the bills home and separate the cash into different envelopes to represent your expenses—rent, utilities, cable, groceries, etc. Show him what remains for discretionary spending and involve him in a discussion of how best to spend it. Show him that your money is a finite resource—once it's gone, it's gone.

When we are stressed about money, it can be hard to think about it or talk about it. However, don't let your financial stress keep you from teaching your son about money. If he lacks financial knowledge and skills, it will set the stage for him creating his own financial mess someday.

Regards,

Dr. Brad